The New Threat To Offshoring

Offshoring has been popular for many years, and back-office processing (BPO) is still a big earner for many nations, particularly in Asia, parts of Latin America and Europe.  However, how long will it continue is anyone guess, with COVID-19 set to cause havoc globally for many months if not years.

Lockdowns have occurred almost everywhere, and in nations where offshoring is a large part of their services sector, remote working is not a foregone conclusion to continue business as usual. Security concerns have meant there are clauses in client contracts which prevent BPO providers from allowing their staff to work from home.

Is Offshoring Cost-Effective?

Businesses realise less value in offshoring.  For example, the wage gap is shrinking now companies can switch to a remote working model onshore for many if not all their staff.

New Technologies

Plus offshoring has been under pressure for some time from new technologies aka digital transformation, including greater immersion of AI, machine learning and robotic process automation.

4th and 5th industrial revolution tech can do the same work faster and for less cost.  Plus handle the mundane tasks, a reason many companies choose the offshoring model in the first place.  They either didn’t want to hire low-value workers who cost a lot more than their offshore counterparts, or they preferred to invest in upskilling their staff to take on other roles and tasks.

Also, onshore competition between digital services providers has lowered the costs to the business for data storage and hosting.  Where once server and website hosting was expensive now with cloud computing its a commodity and a low-value offering.

COVID’s impact on offshoring

COVID has exposed companies vulnerabilities with offshoring.  There is a lack of control, poor communication; therefore if there was ever a time to ditch the offshoring model maybe now is it!

Remote Working

Companies know they can trust their staff to work from home and the cost savings for the business are far-reaching, so it questions the validity of offshoring.

Commercial Real Estate

The reasons to move business processing offshore is losing its lustre for many companies.  If the cost of real estate was a reason to offshore,  it no longer stands up to the test.

Downsizing headquarters and fewer commercial premises are shrinking that value gap between onshoring and offshoring.

BPO Providers fight back

BPO providers know they need to pull out all the stops to retain their customers.

While not a true expression, the saying possession is nine-tenths of the law can suggest that it’s easier to continue business as usual with your offshoring provider. The transformation project to bring process onshore will be costly and disruptive, maybe not a good time to testing your customers’ patience.

Investment in new tech

BPO service providers can show their commitment to their clients with investment in new technologies that reduce the cost of the service.  This action alone may be enough to deter many companies from a major change that could threaten sales.

Tax Advantages

Plus there may still be a tax advantage for keeping services offshore.   Unless Governments offer companies tax credits and stimulus to hire locally and keep or bring back services, the tax may have the final word.

Consulting firm Deloitte conducted 40 interviews with global business service providers, including BPO organisations and the world, changed and the future less clear. Still, it’s not all doom and gloom for the sector.

Opportunities for BPO Service Providers

There are opportunities for it to grow and now working remotely and use of video conferencing second nature, what was considered a communication barrier is now less challenging. It may be a case of who gets there first with new tech adoption.

If BPO service providers step up to the challenge and prove their set up is far superior, delivering cost savings, transparency, and greater flexibility, then why attempt the mammoth task of ‘reshoring’?

Summary

Offshoring is under a greater threat since COVID. Lockdowns and remote working have businesses realising they can save a lot and invest in new technologies, so why not consider ‘reshoring’ business processing. If BPO service providers can prove they have the new technologies and the value will be passed on, then it will be business as usual.